Industrial and logistics real estate is expected to have a very good year in 2020, according to the global real estate firm CBRE.
“2020 could be a pivotal year for the U.S. commercial real estate industry, with geopolitical, economic and local regulatory issues in keen focus,” the company declared in its most recent forecast report.
“Despite transformational changes to our business, CBRE’s 2020 U.S. Outlook predicts a very good year for commercial real estate.”
It cited resilient economic activity, strong property fundamentals, low interest rates and the relative attractiveness of real estate as an asset class as the primary factors supporting this outlook.
“Barring any unforeseen risks, we assess that a recession will be avoided, thanks in large part to the stimulatory effects of the Fed’s rate cuts in 2019,” CBRE believes.
When it comes to warehouse real estate, it forecasts that absorption gains will be limited in 2020, with available supply outpacing demand. Even with this happening, CBRE foresees warehouse and distribution center rents will rise by 5%.
“In spite of some softening in the Industrial & Logistics (I&L) market, overall fundamentals will remain strong due to continued ecommerce penetration and demand for logistics space,” it says. “Rent growth will be driven by newly constructed facilities and infill properties.”
Although there are potential trade-related risks, resilient consumer spending will buoy the I&L market and mitigate any tariff effects on major hubs relying on port activity.
Because of this, CBRE stresses that the U.S. industrial market will see some dramatic shifts in 2020.
“We are seeing higher-than- normal renewal rates, particularly in the markets with the lowest vacancy rates, and this trend should continue if not accelerate in the near term.”
Overall, the market will remain stable as ecommerce penetration continues to impact supply chains, the company observes.
“As operations become more complex for occupiers, there will be a heightened focus on outsourcing, paving the way for growth in the third- party logistics sector.”
In addition, CBRE says data supports its researchers’ consensus belief that supply will outpace demand by 20 million to 30 million square feet. For the first time, there will be an overhang of space since the 2008 recession, it says, although representing only 0.2% of total industrial inventory.
Although the overall vacancy rate may increase slightly, it should remain near historic lows in 2020, the company concludes.
High-quality, first-generation Class-A warehouse space typically generates a rent premium. But the growing demand for light-industrial warehouses of less than 120,000 square feet will accelerate as ecommerce companies race to offer same-day delivery to customers, it says.
“These properties have seen rents rise by 30% in the past five years, whereas big-box rents rose by 15%,” CBRE points out. “Considering that space is very limited in the smaller-size segment, rent growth is expected to continue over the next 12 months.”
Should the U.S.-China trade conflict persist or deepen, it says economic growth may suffer and have a negative impact on I&L markets. However, CBRE stresses that I&L market fundamentals remain extremely strong, and trade with China – while important – is not the only demand driver for warehouse and DC growth.
If trade tensions continue, there are two factors that must be watched, it warns. One is consumer spending, which has a direct impact on industrial market dynamics. The other is supply chain restructuring, where import sourcing shifts largely from China to other countries like Vietnam, Malaysia and India.
“Uncertainty will drive growth in the 3PL segment of the industrial market as companies outsource their operations,” CBRE notes. “This will translate into more 3PL leasing activity – a trend that is already underway.”
As user dynamics change with supply-chain growth requiring more facilities across industrial hubs, several secondary markets are becoming desirable from an investment perspective.
“The major risk to investors in smaller, secondary markets is oversupply and lack of liquidity,” the company says.
Based on its examination of key metrics, CBRE has identified Charlotte, NC; Cincinnati; Denver; Louisville; Orlando; Portland, OR; St. Louis and Tampa, FL; as key secondary markets that can be expected to offer strong liquidity and relatively high income returns in 2020.
<h2>NLRB Weakens ‘Ambush’ Rules</h2>
The National Labor Relations Board has made sweeping changes to a decision by the Obama-era board originally intended to cripple employers’ ability to fight union organizing efforts.
Called “ambush” election rules, they shrank the time period within which an employer could mount a campaign to counter the union’s propaganda among a workforce before a vote was taken.
Adopted in 2014, the rules served their purpose by giving a leg up to unions and making it difficult for employers to mount an effective defense.
Under the Obama-era rule, after a petition was filed employers had to post an election notice within two business days of the hearing notice. That’s now been changed to five business days.
The old rules speeded up the process of scheduling a union election by shortening the time between the date a union filed its petition and the date on which the pre-election hearing was scheduled to open, where disputes related to the election details are theoretically resolved.
This pre-election hearing was held eight calendar days from the notice of hearing. Under the new rules, that has been changed to 14 business days (not calendar days).
The new rule says both parties have the right to file post-hearing briefs to explain their positions on disputed issues following a pre-election hearing.
Previously, post-hearing briefs could only be allowed by a regional director. “Such permission was often denied, and the parties were often only allowed to make an oral argument at the close of the taking of evidence in the hearing,” Davis points out.
The new rules place restrictions on the employee voter lists that the employer supplies both the union and the NLRB. The agency’s regional directors also are not allowed to certify election results before the employer has the opportunity to file an appeal. The 2014 rules required directors to certify the results before an appeal was filed or during an appeal.
<h2>$94 Mil Award Threatens ILWU</h2>
A $93.6 million jury award threatens the very existence of the International Longshore and Warehouse Union.
The jury found that the union engaged in unfair labor practices against an employer forced to abandon a facility because of ILWU actions.
On Nov. 4 a federal jury award in favor of ICTSI Oregon Inc., the former operator of an inland Port of Portland, OR, terminal, came after allegations that the union had engaged in unlawful boycotts and other acts that caused significant damage to ICTSI’s business, eventually resulting in the international terminal operator abandoning the facility.
ILWU said it will seek to have the verdict modified, and seek review of the decision by a federal appeals court. If it does not ultimately prevail, the union says it will be forced into bankruptcy. As of last year, the ILWU listed its total assets as just over $8 million—$85 million less than the judgment.
The lawsuit arose from a labor dispute at Terminal T6 in Portland involving a jurisdictional dispute between ILWU and another union.
Soon after ICTSI opened the terminal, the International Brotherhood of Electrical Workers argued contracts required that jobs be assigned to IBEW members that involved plugging, unplugging and monitoring of refrigerated shipping containers.
The ILWU argued that the terms of its collective bargaining agreement required that the same jobs be assigned to its members. In 2012, the ILWU asked the National Labor Relations Board to assign the jobs to its members, but the NLRB awarded the work to IBEW members instead.
The NLRB decision favoring the IBEW didn’t go over well with the ILWU — to put it mildly.
ICTSI charged that the ILWU responded by engaging in unlawful secondary boycott activity, including unlawful slowdowns where longshoremen operated cranes and trucks in a slow and nonproductive manner.